FinOps:
Unifying Finance & Operations in IT

What are Financial Operations?

Financial Operations is a cloud cost management and optimization framework that aims to assist companies in organizing their cloud workflows, allocating and provisioning resources, establishing transparency, and optimizing cloud usage to eliminate unnecessary expenditures. Businesses and organizations that use cloud computing services purchase their usage rights on a Pay as You Go (PAYG) basis. While this payment model may seem ideal for minimizing costs, without a concerted effort to carefully document usage and spending across all individual teams and departments within a company, many companies have found themselves tangled in a net of cloud overspending.

To bring structure and financial responsibility to these companies, the FinOps framework was developed. FinOps stands for Financial Operations. Simply put, this framework acts as a guide to help bring together the departments of business, finance, and engineering. Together, these teams can plan, gather information, and finally implement principles of transparency, thorough documentation, and establish financial accountability.

FinOps Best Practices

• Track cloud usage and expenses to determine whether it’s necessary or not
• Reduce total expenditures by eliminating unnecessary cloud spending
• Keep your FinOps solution flexible. No need to settle for just one vendor; there are many ways to save money; leverage services from multiple vendors to meet your specific business needs and take advantage of potential discounts, such as volume discounts
• Deploy your FinOps solution in a gradual and methodical way
• Establish Cloud Governance within your company to oversee the provisioning or allocation of access rights to cloud resources and budgeting
• Implement Right-Sizing practices. Strategically identify and determine how much computing usage is required for specific applications or services to avoid costly mistakes, such as over-allocating or wasting resources

Example

A software company relies on multiple cloud services, so they've formed a FinOps team to manage costs effectively. The team analyzes workloads and discovers that some instances are oversized. By rightsizing, they switch these instances to smaller, more cost-effective options that still deliver the necessary performance.

Next, the team implements a tagging strategy to track cloud resources better and allocate them to specific cost centers. This ensures that cloud expenses are correctly attributed to the respective teams or business units, with clear responsibilities. They also introduce KPIs and alert systems to continuously monitor the performance and efficiency of cloud usage.

These FinOps methods enable the company to cut its monthly cloud costs by up to 25%, while also enhancing the efficiency and transparency of cloud resource usage. Utilizing a FinOps tool makes this process even easier and more efficient.

How does FinOps help manage cloud costs?

Interview with Lauran van Eyck, Cloud Cost Management Expert

What is Cloud Computing?

Cloud computing is a secure internet-based service that delivers remote computing solutions, such as databases, servers, storage, analytics, and other resources. Cloud computing comprises services like IaaS, PaaS and SaaS, provided by third-party vendors. Companies and organizations use cloud computing to reduce expenditures, namely in IT departments, reduce workload, and increase the overall speed and functionality of access to company data or resources.

Cloud usage is available to companies using a Pay as You Go (PAYG) payment model, similar to a utility bill. Ideally, this payment model is designed to help companies optimize their spending and only pay for what they need.

There are several benefits to using the cloud; some of the most important ones include speed, accessibility to resources and data, scalability, efficiency, security, and disaster recovery. Managing and scaling company-wide computing capabilities using onsite hardware, data centers, and servers has proven to be less efficient, less flexible, and more costly than cloud computing capabilities. Therefore, cloud computing solutions have become the standard and are continuously being upgraded to provide businesses and organizations with top-tier services.

FinOps Framework

The FinOps framework is a blueprint for companies to use as an informative guide to building and implementing a successful cloud infrastructure. This comprehensive guide covers all aspects of FinOps methodology from the initial planning phase to the launch and on-going maintenance. As established by the FinOps Foundation, the operational framework is comprised of six categories: Principles, Personas, Phases, Maturity, Domains, and Capabilities.

Principles

The principles of the FinOps framework outline the necessary actions companies should implement and maintain. These principles are, in essence, the keys to FinOps success. Some of these principles refer to company culture and ensuring a collective understanding of FinOps best practices, while other principles address FinOps management or technical operations.

Personas

FinOps personas include all the stakeholders and teams involved in the decision-making, management, and operation of FinOps activities. FinOps personas are divided into two groups: Core Personas and Allied Personas. Core personas are those individuals and teams directly involved in the overseeing and execution of FinOps management and activities, such as company management and FinOps practitioners. Allied personas, on the other hand, don’t typically work directly in Financial Operations. Instead, allied personas are individuals or teams that play certain roles which have an impact on FinOps, such as IT asset management, IT service management, or finance management and security.

Phases

Within the FinOps Framework, there are three phases, also known as the three pillars of FinOps: Inform, Optimize, Operate. These three phases can also be referred to as the FinOps Lifecycle. Each phase has a specific purpose:

1. Inform: identification of the usage and cloud costs associated with specific data sources
2. Optimize: identification of where to optimize cloud usage based on information provided by the Inform phase
3. Operate: implementation of operational changes to improve organizational efficiency and accountability based on the information gathered from the Inform and Optimize phases

The goal of these three phases is to help companies ease into a fully operational FinOps solution. FinOps is not a simple concept, it takes time and effort to incrementally transform an organization’s cloud infrastructure from a disorganized nightmare into a coordinated and financially responsible operational solution. Therefore, the implementation process should be methodical, gradual, and rely on collaborative effort between engineering, finance, and operations management teams.

Maturity

The FinOps framework includes a maturity model to assist companies in scaling their FinOps activities, capabilities, and domains. Naturally, when implementing a new system there are stages of growth; the FinOps maturity model provides businesses and organizations with a methodology to assess which stage each function, capability, or domain is currently at and which stage it could potentially progress to. With this model, management can make informed decisions when optimizing cloud usage.

The maturity model consists of three stages of development:

1. Crawl: capability is defined by basic policies and procedures. Insights and reporting about the capability are limited, with only basic KPIs in place to measure success. Implementation of the capability is limited and has not been adopted by all major teams or departments across the organization period.
2. Walk: capability is understood and adopted across the organization. Capability can handle most edge cases and identify more difficult or complex edge cases without adopting them. More advanced KPIs are set to measure medium to high-level goals.
3. Run: capability is fully implemented and utilized across the entire organization. The most complex or difficult edge cases can be addressed. KPIs are implemented to measure the success of the highest goals that have been set. Automation of the capability can also be deployed to improve efficiency and overall success rates.

Domains

FinOps focuses on achieving cost efficiency and optimizing cloud usage within an organization. The FinOps framework defines the four fundamental outcomes, or domains, a business should achieve through the implementation of a FinOps solution. These include:

• Understanding cloud usage and costs
• Quantifying business value
• Optimizing cloud usage and costs
• Managing the FinOps practice

Within each of these domains is a set of recommended capabilities that an organization can deploy to achieve the anticipated results. The capabilities within each domain are categorized in the FinOps Framework graphic above.

Capabilities

FinOps capabilities are individual practices or strategies that represent the actionable tasks required for a FinOps solution to become functional. There are many different capabilities a company can implement, some examples include: allocation, cloud governance, benchmarking, budgeting, workload optimization, etc.

FinOps capabilities are the building blocks of each FinOps domain. There are a total of 22 capabilities within the four domains of the FinOps framework.

Augmented FinOps

Augmented FinOps is the latest innovation in the FinOps community. This advanced version takes standard FinOps practices and augments them with the application of artificial intelligence (AI) and machine learning (ML) automation solutions.

Traditionally, FinOps employs the fundamental concepts of DevOps. The goal is to continuously improve financial visibility and accountability through financial governance, cost optimization, and realistic budgeting. To achieve those results, the DevOps concepts of agility, continuous integration and deployment, and feedback from end-users are put into practice. However, even these concepts that are intended to reduce spending on cloud computing services and increase efficiency can be very time-consuming processes.

With augmented FinOps, companies can now enhance their standard FinOps methodology with automated cloud cost optimization using AI and ML tools. Augmented FinOps is, however, NOT intended for all individuals or teams involved in FinOps operations. This advanced resource is designed for IT management, financial experts, and cloud computing engineers who possess a more keen understanding of pioneering and integrating cloud strategies.

FinOps Certification

FinOps certification programs are designed for business professionals or organizations to gain deeper knowledge in FinOps practices or tools while simultaneously enhancing work performance and validating expertise.

By following through with one of the FinOps Foundation’s industry-recognized training programs, individual professionals have the opportunity to obtain any of the following certifications:

• FinOps Certified Practitioner
• FinOps Certified Platform Engineer
• FinOps Certified Professional
• FinOps For Containers

The FinOps Foundation also offers five training programs for organizations, vendor members, and training partners. These programs have certain prerequisites that prospective organizations must meet in order to be approved for the certification. The five certifications include:

• FinOps Certified Platform
• FinOps Certified Specialty Solution
• FinOps Certified Service Provider
• FinOps Certified Training Provider
• FinOps Certified Enterprise

FinOps certifications can also be obtained directly from cloud vendors, such as AWS or Microsoft Azure. FinOps certifications are a great way to validate either an individual’s FinOps expertise or bring recognition to an organization’s adoption of FinOps best practices and successful cloud financial management.